Friday, May 1, 2009

The Real Reasons For Frugality

Frugality has often been in the news over the last several months. Sometimes it is described in faintly negative tones by the mainstream media, who portray savers as a hindrance to the recovery of our economy. Then there are blogs whose authors try to make money from the frugality trend by offering financial advice and financial planning services. There are also people who define frugality as scoring the best deals on all the stuff being offered by our consumer economy. One peculiar article, titled, “America's New Frugality,” was published by Forbes Magazine in February of this year. It describes strategies “investors” can use to get at the savings of ordinary people who are now turning frugal. Some of their recommendations include investing in saving-and-loan institutions or bargain retailers like, since that's where the supposedly “frugal” people are now putting their money. (Source:

These attempts to “monetize” frugality would be really funny if the stakes weren't so high and the consequences weren't so tragic. Frugality should actually be viewed as a righteous response to scarcity, a choice to live gracefully with less. In fact, frugality is defined as “economy in the use of resources,” according to Merriam-Webster's Collegiate Dictionary, Tenth Edition. As we see how scarce those resources have actually become, we begin to see the real reasons for frugality.

That scarcity is what I want to address in this post. But I must warn you that for many readers, what I am about to say will seem like very bad news. So you may want to sit down (if you're not already). Put on some appropriate mood music, if you think you need it. If you can't think of any, let me suggest Turn To Stone by Joe Walsh. The version he has on his album, You Can't Argue With A Sick Mind, seems appropriately doomful.

Let's start by talking about the last four years. During this time the world saw crude oil prices shoot up from slightly over $30 a barrel to nearly $150 a barrel. The once-hot and ever-climbing real estate market crashed under an avalanche of foreclosures. Prices for food and motor fuel skyrocketed to unsustainable levels and people found themselves unable to pay for these things. The prices of raw manufacturing materials such as metals rose to such levels that thieves were stealing not only residential wiring and plumbing fixtures, but even manhole covers in some cities.

Many who reported on these things treated them as isolated events that seemed to happen without any good reason. But the proper way to view these events is as symptoms of a deeper underlying problem, signs of Something Terribly Wrong underneath. Something's terribly wrong with our present society, our present economy, our present economic arrangements.

Our modern global economy is based on debt and requires continuous growth to function properly. It is based on debt in the sense that the banks who control our money supply loan money into existence. Their expectation is that this money will be paid back with interest, which means that they expect that borrowers will grow ever more prosperous as time passes, and will thus be able to pay off their interest-bearing loans. But for borrowers to grow more prosperous, their individual “net worth” must continually increase. This means either that their wages must continually rise or that some other asset (like a house or a 401K) held by borrowers must continually increase in value.

The other side of a debt-based economy is that many of the things needed by individuals and businesses are so expensive that they can usually be bought only on credit, that is, by taking out a loan. This is true of large businesses like airlines, who borrow money to buy new jetliners, and for ordinary people, most of whom don't have the resources to pay cash for a house or car or expensive medical treatments. As long as the economy is expanding, these borrowers can reasonably expect to be able to repay their loans with interest.

An expanding economy depends on an expanding base of resources. When a resource vital to an industry becomes scarce, its price shoots up and the products made by that industry become more expensive – or scarce. Then it becomes impossible to grow that particular industry unless a substitute resource is found to replace the resource that is now scarce. Our problem is that a large number of resources have now become scarce. Peak Oil is the name for one such resource constraint we are now facing. But there are other resources that are running out – everything from inorganic phosphate fertilizers to industrial metal ores to coal, and much more. There are no substitutes for these resources. And we are using up renewable resources like fish, trees and arable land at a rate far faster than they can be renewed. A shrinking resource base means the end of the growth economy.

Not only have we hit resource constraints, but the earth can no longer safely absorb all of the wastes generated by our global industrial economy. It is now all but certain that manmade air pollutants are causing potentially terminal climate change, that it is being felt now in many parts of the world, and that within a few years we may all be feeling it. The ozone layer of our atmosphere is still being destroyed by manmade chemicals. There are now huge islands of plastic trash floating in our oceans. The pollution of our oceans is endangering the phytoplankton from which half of our oxygen is derived, as well as destroying fisheries. The destruction of our world by our industrial economy means the end of the growth economy.

All of these symptoms are behind the present economic collapse. For instance, the skyrocketing prices of basic necessities from 2005 to 2008 made it impossible for many debtors to pay off their loans, and made it impossible for markets to attract large numbers of new consumers. The crop failures caused by climate change-induced drought are a big reason why some food grains got expensive. These resource constraints and destructive consequences of our industrial system are not going away, no matter how many governments offer “stimulus packages.” The long-term direction of our economy is therefore downward.

Most of us must therefore give up dreaming of getting rich. It has been a popular dream, especially in America, but the truth is that there is no longer enough of the “official” economy left for any significant number of us to achieve that dream. Those who pursue the dream of getting ever-more stuff will hit the wall of resource constraints or of environmental damage. The pie is shrinking. The well has run dry.

Some may ask then about the present time in which many things have started to get cheaper again, like gasoline. This is not due to our finding new resource supplies, but due to the removal of buyers from the market due to economic collapse. The number of people who can qualify for a loan is shrinking; therefore, house prices are falling. The number of people out of work is increasing; therefore, fewer people are driving and gas prices are down. But oil production, to name one resource, is still falling because old oil reservoirs are still being depleted, and oil scarcity is about to make a reappearance. Any attempt to “revive” the economy will run up against the same resource scarcities that caused the present collapse. I would not view this as a good time to go into debt or run out and buy a new big truck or SUV. I have seen a few drivers of these new vehicles lately, some of whom still have the dealer tags on their vehicles, and I can only say that their actions seem dumber than a bag full of rocks.

Frugality is thus the wise, righteous and realistic response to our present times, a learning to live gracefully on less and a learning to live for something other than money and material advancement. It is not a way of getting rich! If anyone is thinking of frugality as a means of socking money away for later investment in some get-rich scheme, I've got one bit of advice: Fahgetaboudit. Those days are over, probably for good. I suggest, instead, that we view frugality as one strategy in a portfolio of strategies for preserving that good which can be salvaged out of this present difficult time, to hand it down to future generations. These are strategies well worth exploring, and there are some very excellent writers tackling these topics. Some of these writers are listed under my heading, “Other Wells,” on this blog.

For Further Reading:

1 comment:

Kiashu said...

There are of course different kinds of "growth"; not all necessarily use a lot more resources. But let's set that aside for the moment.

"Most of us must therefore give up dreaming of getting rich."This a very radical comment, but most people won't really think about why.

The promise of the chance of getting rich helps keep going a big rich-poor gap. People will put up with pretty dreadful lives, and people will put up with living in the poo while others have silver spoons in their mouths, if and only if there's some hope - however small - of their becoming rich.

Widespread poverty and a large rich-poor gap thus require that the poor dream of becoming rich.

Now, how can the poor grow richer? Either they must take some of the wealth of the rich, or they must get their own. Thus, once you have a rich-poor gap, you must have a growing economy - because the rich will not be keen on losing some of their wealth.

Thus, when you've many very poor people and a large rich-poor gap, you must have a growing economy, or you have civil conflict.

Because if there's no hope of escaping from impoverished misery, then...

So what you're talking about is revolution. Thus I do not expect the elites to be promoting a "no growth" economy any time soon.